Lumber Prices To Remain Inflated for Awhile
The pandemic had adverse effects on many aspects of our lives, and the lumber industry was not spared. Many mills experienced closures and wood that was normally in the process of being cured, continued to sit in warehouses, untreated. When lumber businesses picked up where they left off, they found themselves trying to play “catch up.” The lumber industry had already been behind, due to their inability to supply enough lumber to meet the demand for housing; the pandemic only made things worse.
Lumber pricing is measured in “futures.” The lumber future for July delivery were down 42% from the record high reached in early May. This downward movement is positive but doesn’t get lumber prices close to where builders and consumers would like to see them.
The results of the current lumber shortage are clearly reflected in higher home prices. In addition, many builders have stopped selling houses before studs are installed. Builders have also begun to limit the number of homes that they pre-sell; reacting to the uncertainty of future lumber prices. Rather than sell twenty homes this weekend, your local builder is selling three and placing everyone else on a “wait list.” Builders are also creating a competitive market for buyers. Now, rather than simply walk into a neighborhood and place a deposit on a lot and home at a price set by the builder, buyers are being asked to compete for homes by making their “highest and best” offer. This creates a multiple offer situation and escalates the eventual purchase price of the home. This is the same process that we see in the resale market. In the end, going to a builder no longer guarantees that they will have an actual house to sell to the buyer; I mean, they might, at the right price.
The post-pandemic lumber bubble has busted, and the flood gates are open. New construction has now been swept up into the housing frenzy that has resulted from the economic environment of high demand and low supply. Lumber prices will stay high for awhile due to demand from the housing market and an attempt to erase the country’s deficit of housing. Of course, the wood that was hoarded and the wood that is being stolen from job sites every day doesn’t help either.